The legal process of changing a business from one entity type to another — most commonly from an LLC or S-Corp into a C-Corporation.
Entity conversion is the process of formally changing a business's legal structure from one entity type to another. For startups, the most common scenario is converting from an LLC or S-Corporation into a C-Corporation — typically in preparation for institutional fundraising, since most venture funds and angel investors require a C-Corp structure.
The conversion process involves forming a new entity, merging or transferring assets and liabilities from the original entity, reissuing equity in the new entity, and filing state-specific conversion documents. The complexity and cost scale with how much activity the original entity has had — a brand-new LLC with no revenue or contracts is straightforward to convert; an entity with employees, contracts, and existing equity has more moving parts.
A common extension of entity conversion for startups is simultaneous redomiciliation to Delaware. Many founders who are converting anyway use the opportunity to also reincorporate in Delaware, since Delaware's Court of Chancery and well-established corporate precedent are standard expectations among institutional investors. Doing both at once avoids a second round of legal work later.
Conversion has tax implications that vary depending on entity type, state, and timing. S-Corp to C-Corp conversion in particular can trigger gain recognition on appreciated assets. Engaging a startup attorney and CPA before converting is strongly recommended.